Industry experts have predicted a rise in home healthcare bankruptcies amid COVID-19 virus. But home care providers likely won’t be the only ones impacted by tighter cash flow and unexpected expenses.
Ultimately, there will likely be an increase in health care bankruptcy filings, especially in sectors such as skilled nursing and senior living facilities. This, in turn, could also present new opportunities for home care providers surviving the current crisis.
In the healthcare landscape, in general, Chapter 11 bankruptcy filings have become more common in recent quarters – a trend that is only expected to accelerate post-coronavirus, according to firm shareholder Jeremy Johnson. of Polsinelli Lawyers, where he focuses on health care restructurings.
“The health care records are coming in,” Johnson told Home Health Care News. “Third quarter, fourth quarter, then the beginning of next year is really when you’re going to start seeing the health care records. Right now there’s a lot of money being made available of certain types of operators…. But that doesn’t solve a lot of financial problems, it just ensures that they continue to operate in the meantime.
Polsinelli is following Chapter 11 healthcare filings — which are also known as reorganization bankruptcies, allowing companies to restructure debt and assets. The company reports its findings in a quarterly Distress Index, which includes organizations with assets over $1 million.
The higher the value of an index, the more financial stress an industry faces. For health care, the index continues to be “significantly higher” than indices monitoring other industries and above expected benchmarks.
In Q1 2020, Polsinelli’s Health Services Distress Search Index was 233.33, already up 8 points from Q4 2019. Keep in mind that this period largely includes information prior to the impact of COVID-19.
As the virus began to take the country by storm in mid-March, the uncertainty initially caused a pause in Chapter 11 filings, according to Johnson.
“You only deposit for [Chapter 11] bankruptcy if you are forced to avoid a particular outcome or try to implement some solution,” he said. “The virus has fundamentally upended the solutions people had – it’s hard to file for bankruptcy when you don’t know what the economic landscape will look like three weeks from now, let alone six months from now.”
Historically, home health care providers have not been the best candidates for Chapter 11 bankruptcy because filings typically cost at least a few hundred thousand dollars and require an organization to have a certain amount of physical assets and liabilities.
Chapter 7 — also known as liquidation bankruptcy — is the most common bankruptcy filing route for home health care providers. Yet any kind of bankruptcy filing has always been rare for the industry.
However, the coronavirus is expected to push a larger than usual number of home healthcare providers into some sort of filing, as financial pressure continues to weigh on the industry, which is already marred by wafer-thin margins. .
For example, a recent HHCN survey of home care providers showed that nearly 92% of respondents – or 136 people – said their overall income had decreased due to the COVID-19 virus. Of these, 116 respondents said revenues had fallen by 10% or more.
Despite financial pressure, home care providers seem to fare better than some other types of post-acute care providers. Take Skilled Nursing Facilities (SNFs) and Continuing Care Retirement Communities (CCRCs), for example. Even before the coronavirus, many elder care providers were struggling financially.
“In the past year, well over 50% of health care filings were for hospitals and nursing homes – either CCRCs or SNFs,” Johnson said.
He predicts that this trend will be exacerbated by COVID-19, which could potentially create more opportunities and recognition for home care and home care providers to care for older people in their homes, rather than for they are cared for in an institutional setting.
“Care for the elderly, residences for the elderly [and] the skilled nursing industries are set to navigate an extremely difficult road over the next 24 months to a few years,” Johnson said. “No one will voluntarily put their parents in a skilled nursing facility or an aged care home [community], or even an assisted or autonomous residence type operation. I think they are all going to have substantial success until there is a solution to the coronavirus problem. …And the long-term effect of this on hospitals is what everyone is trying to figure out right now.